Tag: Arab League

The end is nigh, once again

Two years ago I published a post with this title. Remarkably little has changed since then in many conflicts:

  • South Sudan is suffering even more bloodletting.
  • The Central African Republic is still imploding.
  • North Korea is no longer risking internal strife but continues its belligerence on the international stage.
  • China is still challenging its neighbors in the East and South China Seas.
  • Syria is even more chaotic, with catastrophic consequences for its population and strains for its neighbors.
  • Egypt continues its repression of the Muslim Brotherhood and secular human rights advocates.
  • Israel and Palestine are no closer to agreement on a two-state solution.
  • Afghanistan has a new president but the Taliban are stronger in the countryside and the Islamic State is gaining adherents; money and people are still expatriating.
  • Al Qaeda is less potent in many places, but that is little comfort since the Islamic State has risen to take the leading role in Salafist jihadism.
  • Ukraine has lost control of Crimea, which has been annexed by Russia, and risks losing control of much of the southeastern Donbas region.

The only issue I listed then that is palpably improved is the Iranian nuclear question, which is now the subject of a deal that should postpone Tehran’s access to the nuclear materials required to build a bomb for 10 to 15 years.

Danielle Pletka of AEI topped off the gloom this year with a piece suggesting there are reasons to fear Putin’s recklessness could trigger World War III.

Without going that far, it is easy to add to the doom and gloom list:

  • Europe is suffering a bout of right-wing xenophobia (the US has a milder case), triggered by migrants from the Middle East and North Africa.
  • Mali and Nigeria are suffering serious extremist challenges.
  • The Houthi takeover in Yemen, and intervention there by a Saudi-led coalition, is causing vast suffering in one of the world’s poorest countries and allowing Al Qaeda in the Arabian Peninsula to expand its operations.
  • Civil war in Libya is far from resolution, despite some signatures on a UN-sponsored agreement to end it.
  • Turkey has re-initiated a war against Kurdish forces that had been in abeyance.
  • Even Brazil, once a rising power, is suffering scandals that may bring down its president, even as its economy tanks.

I’m still not ready to throw in the towel. Some successes of two years ago continue and others have begun: Colombia‘s civil war is nearing its end, Burma/Myanmar continues its transition in a more open direction (even though it has failed to settle conflicts with several important minorities), Kenya is still improving, ditto Liberia, which along with Sierra Leone and maybe Guinea seems to have beaten the Ebola epidemic, and much of the Balkans, even if Kosovo and Bosnia are going through rough patches.

I still think, as I said two years ago:

If there is a continuous thread running through the challenges we face it is this:  getting other people to govern themselves in ways that meet the needs of their own populations (including minorities) and don’t threaten others.  That was what we did in Europe with the Marshall Plan.  It is also what we contributed to in East Asia, as democracy established itself in Japan, South Korea, Taiwan, Indonesia and elsewhere.  We have also had considerable success in recent decades in Latin America and Africa, where democracy and economic development have grown roots in Brazil, Argentina, Ghana, South Africa, and other important countries.  I may not like the people South Africans have elected, but I find it hard to complain about the way they have organized themselves to do it.

This is what we have failed to do in the Middle East:  American military support for autocracies there has stunted democratic evolution, even as our emphasis on economic reform has encouraged crony capitalism that generates resentment and support for Islamist alternatives.  Mubarak, Asad, Saleh, Qaddafi, and Ben Ali were not the most oppressive dictators the world has ever known, even though they murdered and imprisoned thousands, then raised those numbers by an order of magnitude as they tried to meet the challenge of revolution with brute force.  But their departures have left the countries they led with little means of governing themselves.  The states they claim to have built have proven a mirage in the desert.

If there is reason for doom and gloom, it is our failure to meet this governance challenge cleverly and effectively.  We continue to favor our military instruments, even though they are inappropriate to dealing with most of the problems we face (the important exceptions being Iran and China).  We have allowed our civilian instruments of foreign policy to atrophy, even as we ask them to meet enormous challenges.  What I wish for the new year is recognition–in the Congress, in the Administration and in the country–that we need still to help enable others to govern themselves.  Investment in the capacity to do it will return dividends for many decades into the future.

 

 

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The UN leans forward

The UN last week leaned forward on two important conflicts. The Secretariat went ahead with a Libyan peace deal, despite the refusal of the chairs of the country’s two competing parliaments and some armed groups to sign. A couple of days later, the UN Security Council passed a Syria resolution endorsing the so-called Vienna 2 road map for a ceasefire, negotiations, a new constitution, transition and elections. Neither move ends either war. Optimists hope they are first steps in the right direction.

The roads ahead will be difficult. In Libya, many armed groups seem unready to end their struggle, which is more about control of oil, the country’s substantial sovereign wealth funds and patronage than it is about religion or identity. But that is little comfort. It is not clear whether the Tobruk-based parliament, recognized under the agreement as a powerful lower house, will be able to move to Tripoli. Nor is it clear that the Tripoli-based parliament, which is to become a kind of advisory upper house, accepts its reduced role. Without a substantial deployment of peacekeepers, there is little the international community can do beyond the threat of sanctions against individuals to change their minds. In the meanwhile, the Islamic State is expanding its presence and aiming to control Libya’s vital oil facilities. Maybe that will get the attention of the warring factions.

Syria is no less difficult. The United States and Russia may nominally agree that it should remain united and become a state in which its citizens decide how it is governed, but they differ on whether and when Bashar al Assad should go, who is a terrorist and what should be done to fight the Islamic State. Washington thinks Assad has to leave in order to enable a serious fight against terrorists. Russia thinks he is fighting terrorists but might eventually leave, if and when the Syrian people decide. Russia is mostly bombing people the Americans thinks are moderates vital to Syria’s future, not the Islamic State. Washington is beefing up moderate forces, but refuses to give them the means to end barrel bombing and Russian strikes. Even a ceasefire in Syria will be difficult. The Islamic State and Jabhat al Nusra (an Al Qaeda affiliate) won’t participate. Who will monitor the ceasefire, reporting on violations and who commits them?

None of this means the UN is wrong to try. What it means is that our expectations should be tempered.

A serious ceasefire in all of Syria isn’t likely. Some parts of the country may calm, but the international community will need to settle for “fight and talk,” a time-honored tradition. Agreement on transition isn’t likely either. The day Bashar al Assad agrees that at some future date he will be leaving power will be the day he leaves power. The notion that he will preside over a credible democratic transition is bozotic. He intends to remain in power and will likely be able to do so as long as the Russians and Iranians back him.

In Libya, it is unlikely that the UN-sponsored accord will be implemented without some sort of international peacekeeping presence, to secure at least Tripoli so that the united government the agreement foresees can safely meet and deliberate. That may be neccessary, but not sufficient, since the Islamic State threat is not in Tripoli (yet), but rather in Qaddafi’s hometown of Sirte, and civilians in Benghazi need protection even more than those in Tripoli. Washington isn’t going to bother with Libya, except when it targets an Islamic State militant or two (or two dozen). If Libya is to be stabilized, the Europeans will need to step up to the task, or convince Arab countries to do it. Italy is attached by umbilical pipelines to Libyan gas production. France also enjoys Libyan oil and gas. Europeans with interests need to stop talking and start acting if they want their investments and energy supplies saved.

The UN is also leaning forward in Yemen, where the more or less Shia Houthis allied with forces loyal to former President Saleh are fighting the Saudi- and Emirati-backed effort to restore President Hadi to power in Sanaa. The effort to get a ceasefire and political settlement there is just beginning, without much initial success. Meanwhile, Al Qaeda in the Arabian Peninsula is expanding and enjoying relative immunity in Yemen’s vast hinterlands. The Islamic State can’t be far behind.

The seemingly shy and hesitant Secretary General Ban Ki-moon is proving to be a bold risktaker. The UN is doing the right things. If it didn’t exist, we would have to invent it. American politicians should be more appreciative.

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Transition matters

The Carnegie Endowment for International Peace hosted a panel on Thursday entitled “Searching for Answers to Troubled Democratic Transitions,” co-sponsored by the National Endowment for Democracy, the Inter-American Dialogue, and the International Institute for Democracy and Electoral Assistance (International IDEA). The panel gave Abraham Lowenthal, professor emeritus of International Relations at USC, and Sergio Bitar, non-resident senior fellow and project director at Inter-American Dialogue, the opportunity to present their new book, Democratic Transitions: Conversations with World Leaders, an edited volume of lengthy interviews the two editors conducted with leaders who oversaw the gradual and successful transition of their countries from autocracy to democracy, as well as with some opposition figures from those countries.

The aim of conducting the interviews was to determine whether lessons can be drawn from earlier transitions in ‘Third Wave’ countries such as Indonesia, Chile, and Ghana and applied during what some have termed a democratic recession. After their overview, the president of the National Endowment for Democracy, Carl Gershman, contributed comments, while the audience also heard from two experts on countries currently on the cusp of transitions: Priscilla Clapp, senior advisor at the US Institute of Peace and the Asia Society, discussed Myanmar, while Moisés Naím, distinguished fellow at Carnegie, discussed Venezuela.

Carnegie’s vice president for Studies, Thomas Carothers, introduced the panel, remarking that the world has not seen a single new democracy emerge in the past decade. The Arab Spring was a period of hope, but with transitions thwarted in many of those countries, we have also been observing worrying global trends that would seem to suggest the push for democracy has slowed or even begun to reverse. Carothers still believes that the arc of history bends toward democracy, however, and the panelists would appear to agree.

Lowenthal underlined that the aim of the book was not to produce a work of theoretical comparative politics, but to try to distil best practices and recurrent issues for democratic transitions from the experiences of leaders who had lived and struggled through them. The narrative of prior experience can provide general principles that politicians in developing democracies can apply to local problems. Through their interviews, Lowenthal and Bitar observed that a set of issues cropped up in each case, apparently inherent to the process of transitioning. These included the problems of unifying oppositions while marginalizing destabilizing elements within them, preventing violence while separating a legitimate police force from the armed forces, and fighting corruption and impunity, among others.

Lowenthal and Bitar came up with ten imperatives for transition:

  • Move gradually and take every opportunity, not waiting for a ‘better’ choice
  • Maintain a hopeful vision about the process
  • Build coalitions between political parties and social movements
  • Protect the spaces of open dialogue
  • Build a constitution that represents all members of society and institutes a system for problem-solving
  • Enhance and reinforce political parties, or create them if necessary
  • Separate the police from the armed forces and ensure the latter is subject to the government
  • Ensure transitional justice
  • Manage the political economy of transition, to provide the basic conditions for governance
  • and manage external support, so that it converges with domestic forces

Gershman found the book instructive. Despite apparent autocratic resurgence and a crisis of confidence or political dysfunction in many advanced democracies, he thought what is currently occurring should not be understood as a democratic recession, but rather a ‘third reverse wave’ following on the Third Wave of the late 20th century. He offered steps that ought to be taken by advanced democracies to shepherd democratic transitions elsewhere, including a call to regain the will to fight the political and intellectual battle for liberal democratic values.

Gershman was uncompromising; he diverged from Lowenthal and Bitar in rejecting gradualism, saying that we cannot accept hybrid regimes as better than dictatorships. The editors, however, confirmed that all the interviewees had come out strongly in favor of gradual transitions. That is often how transitions transpired successfully.

Clapp found much similarity between the cases described in the book and the situation in Myanmar today, although the transition there is still in early stages and needs to be further developed. The international community entertains very high expectations given Myanmar’s specific history and context: it has been for so long a repressed society and still faces significant challenges in its transition, in military-civilian relations, an economy thoroughly controlled by an oligarchy, and exclusion of ethnic minorities.

Naím presented a dissent. By interviewing leaders only, the book presents one perspective on the transition process. Valuable as this work is, there are significant differences with many of the countries today on the cusp of transitioning, as opposed to the Third Wave countries covered in the book. These ignored factors include the phenomenon of states incorporating crime into their behaviour, as ‘mafia states’ (like Russia or Venezuela); the crucial role oil plays in oil-producing autocracies, shoring up regimes; the outsized influence of foreign actors; the role of social media; and expanding middle classes. Naím also thought it a simplification that militaries are treated as unified institutions, when really within militaries there are numerous factions competing for power.

A key issue remained unresolved: whether the experiences of Third Wave democracies could be applied to countries in North Africa, the Middle East, and elsewhere in the future.

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Peace picks August 10-14

1. After the Iran Deal: Regional Repercussions and Dynamics | Monday, August 10th | 12:00 – 1:30 | MEI | REGISTER TO ATTEND | The Middle East Institute (MEI) is pleased to host a discussion of expectations across the region following Iran’s agreement with the P5+1 on its nuclear program. The historic deal may end Iran’s status as a pariah state, particularly in capitals outside the region. How have leaders in Tehran indicated they may proceed? How do the Arab states and Turkey view the implications of an Iran empowered by sanctions relief and diplomatic normalization? How might regional states react if Iran steps up its interventions in Yemen, Syria, Iraq, and elsewhere? And what actions are America’s allies in the region likely to want of the United States in managing Iran?  Discussing these and other questions will be MEI senior fellow Robert S. Ford, MEI scholar Thomas W. Lippman, director of the Center for Turkish Studies Gönül Tol, and senior fellow Alex Vatanka. MEI’s vice president for policy & research Paul Salem will moderate the conversation.

Israel (top left), Jordan (top right), Bahrain (bottom left) and Oman (bottom right) are four key US regional allies that likely have four different responses to the deal.  PC: Eddie Grove
Israel (top left), Jordan (top right), Bahrain (bottom left) and Oman (bottom right) are four key US regional allies that likely have four different responses to the deal. PC: Eddie Grove

2. Naval Aviation Wednesday, August 12th | 9:00-10:00 | CSIS | REGISTER TO ATTEND | Please join CSIS and the U.S. Naval Institute (USNI) for a discussion with Lieutenant General Jon Davis, Deputy Commandant for Aviation and Vice Admiral Mike Shoemaker, Commander, Naval Air Forces moderated by Admiral Joseph Pureher, USN, Ret. Vice Admiral Peter H. Daly, USN, Ret., CEO, USNI will provide an introduction.  The Maritime Security Dialogue brings together CSIS and USNI, two of the nation’s most respected non-partisan institutions. The series is intended to highlight the particular challenges facing the Navy, Marine Corps, and Coast Guard, from national level maritime policy to naval concept development and program design. Given budgetary challenges, technological opportunities, and ongoing strategic adjustments, the nature and employment of U.S. maritime forces are likely to undergo significant change over the next ten to fifteen years. The Maritime Security Dialogue provides an unmatched forum for discussion of these issues with the nation’s maritime leaders.

3. Thailand and the Changing Geopolitical Dynamics of Southeast Asia | Wednesday, August 12th | 10:00 – 11:30 | Carnegie Endowment for International Peace | REGISTER TO ATTEND | In the Asia-Pacific, economic development and interconnectivity is growing alongside increasing tensions between neighbor states. This is no clearer than in the fight for building Thailand’s infrastructure. Nobuhiro Aizawa will discuss how Thailand’s 2014 coup and competing infrastructure bids are altering the geopolitics and international relations of Southeast Asia. Abigail Friedman will offer comment, and Carnegie’s James L. Schoff will moderate.  Speakers include: Nobuhiro Aizawa, associate professor, Kyushu University, Abigail Friedman, founder and CEO, The Wisteria Group.  Moderator: James L. Schoff, senior associate, Asia Program,Carnegie Endowment for International Peace.

4. The Threat from Within: Israel’s Extremist Dilemma | Wednesday, August 12th | 11:30 | FPRI (n.b. this event is in Philadephia but FPRI posts video and/or audio of its events) REGISTER TO ATTEND | “We have been lax in tackling Jewish terrorism,” said Israeli President Reuven Rivlin this week in response to the attacks at the gay pride parade and then the firebombing of a home in the West Bank, resulting in the burning to death of an 18-month-old child. These are not isolated incidents, however, and pose a threat to the Israeli government’s authority, Israeli democracy, and add yet another impediment to peaceful resolution of the Israeli-Palestinian dispute. We have asked Barak Mendelsohn to explore the rise of Jewish extremism in Israel, the dilemmas it poses for Israel, and what might be done to alleviate it.  Barak Mendelsohn is a senior fellow at FPRI and associate professor of political science at Haverford College. This past academic year, he served as a fellow at the Belfer Center for Science and International Security at Harvard’s Kennedy School of Government. He has already written extensively on the Messianic movement inside Israel, in addition to his work on radical Islam and jihadism. He served in the IDF for 5 years and received his Ph.D. in government from Cornell University. His books include Combating Jihadism (University of Chicago Press, 2009) and The Al Qaeda Franchise (Oxford University Press, forthcoming 2015).

In June, Israeli Jewish extremists torched the Church of the Multiplication (left) associated with Jesus's Multiplication of the Loaves & Fishes.  Authorities also found graffiti denouncing idol worship.  On his visit there, the author enjoyed some modern-day loaves and fishes beside the Sea of Galilee/ Kinneret (top right) in Tiberias.  Tiberias is also home to the tomb of Maimonides aka the Rambam, a Medieval Sephardic  Jewish Scholar.  Recently, Benzi Gopshtain, the head of the extremist group Lehava, used the Rambam's opinion that Christianity is idolatry as justification for torching churches. PC: Eddie Grove
In June, Israeli Jewish extremists torched the Church of the Multiplication (left) associated with Jesus’s Multiplication of the Loaves & Fishes. Authorities also found graffiti denouncing idol worship. On his visit there, the author enjoyed some modern-day loaves and fishes beside the Sea of Galilee/Kinneret in Tiberias (top right). Tiberias is also home to the tomb of Maimonides aka the Rambam, a Medieval Sephardic Jewish Scholar (bottom right). Recently, Benzi Gopshtain, the head of the extremist group Lehava, used the Rambam’s opinion that Christianity is idolatry as justification for torching churches. PC: Eddie Grove
View of the Thames River and the London Eye from St. Paul's Cathedral.  PC: Eddie Grove
View of the Thames River and the London Eye from St. Paul’s Cathedral. PC: Eddie Grove

5. From Coalition to Conservative Majority: What’s Next for UK Foreign Policy? |Wednesday, August 12th | 6:30 | British Embassy | REGISTER TO ATTEND | This past May, the United Kingdom took to the voting booths and surprised many pollsters by handing a slim majority to Prime Minister David Cameron’s Conservative Party, thereby electing the UK’s first Conservative majority government in over a decade. Meanwhile, former Tory coalition partners the Liberal Democrats, led by outgoing Deputy Prime Minister Nick Clegg, managed to hold only about 15% of their previous seats, the Labour Party lost seats and the Scottish National Party became the third largest party in the Commons. Since the election, the UK has continued to play a major role in the international foreign policy scene, from announcing its commitment to maintaining NATO’s defense spending target of 2% of GDP to playing a leading role in negotiations on the Iran Nuclear Deal.  Young Professionals in Foreign Policy and the British Embassy invite you to join us for a post-election discussion moderated by Deputy Head of Mission to the United States, Patrick Davies. Mr. Davies, joined by a panel of experts from the Embassy, will discuss the new UK government, as the UK and its allies grapple with foreign policy issues such as combating ISIL, nuclear negotiations with Iran and EU reform.

6. Assessing the Iran Nuclear Agreement: Placing Sanctions in Context | Thursday, August 13th | 10:00-11:00 | The Heritage Foundation | REGISTER TO ATTEND | Sanctions are what convinced Iran to begin negotiations with the United States. However, the mechanics behind lifting sanctions and the differences among international, U.S. and European Union sanctions are complicated. All beg the question of how effective the Iran deal really is. This program will explore the role of sanctions in the Iran Deal. Our panelists will examine the structure of the sanctions regime, debate its various implications, and explore what we can do about it. Among the questions to be addressed are: What sanctions are currently in place on Iran? What is the difference between multi-lateral oil sanctions and unilateral sanctions imposed by the United States on Iran? Is it really possible for the sanctions to be “snapped back” if Iran violates the agreement? Would the sanctions regime really disband if there was no agreement?  Join us as our panel discusses Iran’s new sanctions regime and what it means for the future.  Panelists include: Ilan Berman, Vice President, American Foreign Policy Council, Emanuele Ottolenghi, Ph.D., Senior Fellow, Foundation for Defense of Democracies, Bruce Klingner, Senior Research Fellow, Asian Studies Center, The Heritage Foundation. Hosted by: James Jay Carafano, Ph.D., Vice President for the Kathryn and Shelby Cullom Davis Institute for National Security and Foreign Policy, and the E. W. Richardson Fellow, Heritage Foundation.

7. The Iran Deal: Key Issues and Controversies | Thursday, August 13th | 2:00 pm – 3:00 pm | CSIS | REGISTER TO ATTEND | Please join us for a discussion with Dr. Colin Kahl and other members of the administration on key elements of the Iran nuclear deal and its specific implications for the international community. Speakers include: Dr. Colin Kahl,
Deputy Assistant to the President and National Security Adviser to the Vice President, Jon Wolfsthal, Senior Director for Arms Control and Non-proliferation, National Security Council, Chris Backemeyer, Deputy Coordinator for Sanctions Policy, U.S. Department of State.  Moderator: Dr. Anthony H. Cordesman, Arleigh A. Burke Chair in Strategy, CSIS.

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Energy markets: US up, Middle East down

Screen Shot 2015-07-23 at 4.00.31 PMThursday, the Atlantic Council hosted a talk on energy policy entitled “The Future of Energy Markets: The Other Middle East Revolution.” The event featured Majid Jafar, Chief Executive Officer of Crescent Petroleum as the key speaker. Richard Morningstar, Founding Director of the Global Energy Center at the Atlantic Council moderated the event.

Jafar recounted the changes in the energy markets in the past 15 years. In 2000, the price of oil was in the low teens and natural gas was $10. The US was an importing country, which meant it was building LNG terminals everywhere. The Middle East was relatively stable. More than a decade later, the price of natural gas has plummeted again, but the US has become an exporting country. The shale oil and gas boom has led the US to convert its LNG terminals for export. Equally if not more importantly, the Middle East has become very unstable.

US Private Sector

Jafar also emphasized the power of US private sector. He claimed the energy breakthrough was despite rather than because of government policy and lauded the US for its long-term strategic energy planning. The US has experienced a large drop in carbon emissions while seeing huge job creation in the oil and gas sector. In contrast, European countries, such as Germany, set ambitious targets like zero fossil fuels and made a mad dash for renewable energy sources. This move stifled the Germany economy and inflicted huge costs on Germany households and industries. Ironically, Germany is experiencing rising emissions and is having to import coal from the US.

Lessons Learned

The CEO shared three lessons he had learned from his experience in the energy industry:

  1. Do not underestimate the power of the US private sector, especially in the energy industry. Huge innovation can drive many changes.
  2. Never underestimate the ability of the Chinese public sector to complete their plans. The East-West pipeline is a classic reflection of the Chinese capability in completing large-scale projects.
  3. Never underestimate the ability of the Middle East public sector to get things wrong.

Jafar added that the unique US ecosystem cannot be replicated elsewhere. It includes infrastructure, capital markets, energy trading hubs, many small companies and a system of mineral rights. However, other countries can learn to provide better access to finance, encourage competition and transparency, and expand their private sectors.

The Middle East

The Middle East contains half the world’s proven oil and gas resources but accounts for less than a 1/3 of global oil exports and less than a 1/6 of global gas exports. The region has experienced a declining market share due to numerous conflicts, years of Iran sanctions and poor policies. Energy subsidies in particular pose major problems. The region has lost $225 billion to subsidies, which do not even help the poor people who are supposed to be the beneficiaries. The good news is that the current low oil prices provide many countries the opportunity to reform subsidies, because the gap between the market price and subsidized price is small.

Egypt is a good example. It has committed to reforming energy subsidies, because they are unsustainable and divert money from important areas of investment that create jobs. Egypt’s spending has been divided between debt service, salaries and subsidies, which left the government with little to spend on investment, infrastructure and jobs.

Another problem with the region is the dominance of national oil companies, which hinder competition and positive performance. When an energy minister is also the chairman of the oil company, there is no difference between the regulator and the regulated, which hurts policymaking. Some countries, such as Kuwait, Iran and Saudi Arabia, have realized this and partnered with private investment companies. Jafar said he is not calling for complete privatization, merely a bigger role for the private sector in developing state assets.

Iraq

Jafar also detailed Iraq’s important role in the energy world. The failing state is responsible for 40% of global oil export growth despite failure to pass hydrocarbon legislation, a lack of internal consensus on energy policy and the ISIS presence. Iraq’s production is nevertheless at an all-time high, making it the second biggest producer in OPEC. If Iraq gets its act together, it could produce 6-12 million barrels of oil per day. Iraq may have larger oil reserves than Saudi Arabia—at least 300 undrilled structures lie in the Western desert.

The Kurdistan Regional Government (KRG) has done well in passing legislation, working with private companies and essentially getting the policy right. But it faces implementation challenges because the Baghdad government is unable to pay the KRG for its oil. In southern Iraq, the latest market methods have been used with transparent bidding rounds involving private companies. However, the decision to sign service contracts was a bad one, because it means southern Iraq has to pay private oil companies a fixed fee regardless of the price of oil. With the oil price collapse, southern Iraq can no longer afford to pay the companies and is discouraging investment. A new contract model is needed where companies receive a percentage of the government’s oil profits, as opposed to a fixed fee. More importantly, a stable security environment is needed to encourage continued investment.

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Iran’s return to oil markets

Thursday, the Wilson Center focused on “Middle East Energy: Beyond an Iran Nuclear Deal,” which explored the oil and gas sectors’ future given Iran’s possible sanctions relief. Speakers included David Goldwyn, President of Goldwyn Global Strategies LLC, David Gordon, Senior Advisor of the Eurasia Group, Julia Nanay, Principal at Energy Ventures LLC and Jean-Francois Seznec, a non-resident Senior Fellow at the Atlantic Council. The event was moderated by Jan H. Kalicki, Wilson Center Public Policy Fellow and Energy Lead.

Gordon talked about potential energy market responses with the entry of Libya and Iran into the market. Libya’s entry last year put downward pressure on oil prices. The country is currently in the process of building up its export volumes, but the political and security fragility remains. Iran’s market impact is also uncertain. There may be competition between Iran and the Gulf Cooperation Council (GCC) states for market share. Iran’s success is far from assured. The current uncertainty ends up being bearish for energy markets, which will lead to the strengthening of the US dollar. Only the risk of supply disruption and failure of nuclear talks could be bullish for markets.

If sanctions are lifted, Nanay thinks Iran’s key goal is to become the second largest producer in OPEC. Saudi Arabia’s oil production amounts to 10.3 million barrels a day, while Iran is at 2.8 million barrels a day. Iraq’s is a bit higher. Iran might bring back 700-800,000 barrels a day, with 20 million barrels released quickly and efficiently. Sanctions have also prevented oil revenues from flowing back to Iran. There may be as much as $100 billion that could be released quickly, possibly half from China. International oil companies (IOCs) also owe large sums to Iran.

Possible losers from sanctions relief are the Saudis, Russians, Nigerians and Kuwaitis. The Saudis and Russians have been able to capture some exports to China. Sanctions relief would decrease the market share of all oil exporting countries that have benefited from having Iran off the oil market.

Iran has several stalled projects with significant market potential in the oil and gas sectors. A South Pars project requires 24 phases to develop fully, of which 11 phases have already been done without sanctions removal. Iran is looking to complete more phases by next year. Iran has also planned three big Liquefied Natural Gas (LNG) projects. Iran can ship this LNG to Europe and supply its neighbors, such as Saudi Arabia and Kuwait, but politics may complicate partnerships. The only neighbor Iran has a good relationship with is Oman. An Iran-Oman gas pipeline is possible, but the countries may disagree on price.

Seznec disagreed with Nanay on Iran’s potential in the oil market. Iran will require technology and investment that would make it dependent on IOCs. Instead, Iran can emphasize natural gas, which both Iran and the Gulf states need. The GCC states—especially Saudi Arabia—could partner with Iran in the gas sector. The Saudis have the technology and money to help the Iranians redevelop their gas fields. The Kingdom is seeking to avoid overdependence on crude oil. Instead, it wants to add value by building capacity for refined products and chemicals. Their vision is eventually to get out selling crude and leave Iran and Iraq as the “third world countries” that produce raw materials.

Goldwyn commented on Iraq’s position in the oil market. He believes Iraq might increase production by completing the revamp of the Al Faw Peninsula, but that is an $8-10 billion dollar project.

On the Baghdad-Kurdistan Regional Government deal, Goldwyn pointed out two reasons for the unraveling:

  1. Baghdad hasn’t paid Kurdish forces what it owes.
  2. The Kurds are not exporting the agreed-upon average of 550,000 barrels per day.

If Iraq is unable to increase production much and Iran produces an additional 500-800,000 barrels a day, there is no need for OPEC quota renegotiation, Goldwyn said. There is room for rapprochement on economics between Iran and the Gulf states. But first there must be rapprochement on security. If Iran reduces its involvement in Yemen and Iraq, there is potential for détente with the Saudis, who would also have to do their part in reducing the flow of funds to Al Qaeda and ISIS. If both parties deliver, an economic deal is on the horizon. Otherwise, the current situation will continue, with the Saudis better financed and more competitive than any other player in the Gulf.

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